Insurers and charities need to work together to ensure a full understanding of the unique risks faced, urges Maria Thorpe.

Charities face unique challenges, many of which do not exist in the for-profit arena. To provide cover for charities an insurer must understand these challenges, and how they affect the risk.

Charities are well known as a soft touch for dishonest employees. Without the resources of a corporate organisation, security procedures are often ineffective at preventing loss through employee or volunteer dishonesty. Charities frequently fail to take fidelity risk into account, believing charity workers are less likely to be dishonest.

Another distinct risk is the threat of litigation. The advice that charities give can lead to legal action, particularly in the social care arena, where the individuals contacted are often vulnerable, due to disability, illness or age. The cost of liability litigation, due to individuals suffering harm from a charity's advice, will be particularly damaging for a charity. The problem is that the public frequently assumes that charity workers are qualified to provide advice, without realising, for example, that a medical charity adviser is not necessarily a qualified medical practitioner.

Charities' finances also make their risk profile unique. A recent study by the Charities Commission found many charities were providing insufficient financial reporting. It is now necessary for charities to prove they are using the funds available to them in an appropriate manner, making a “significant social and economic impact.” Failure can instigate a Commission investigation into the use of funds with a possible consequence of losing charitable status.

When facing litigation, charities have another insurance predicament; it's not always possible to obtain executive liability cover for trustees. Charitable bodies need permission from the Charities Commission to use their funds to insure individual trustees in this way. In reality, this has led to many charities simply not buying insurance for their trustees.

Going forward, insurers and charities need to work together more closely, to help charities minimise their unique and complicated risks, and to ensure their insurance arrangements support the vital work they do.